Private Residence Relief and CGT on selling a home with extra land

[AutumnDragon]

We bought our home over 15 years ago and have lived in it continually. It is our only property. We are hoping to sell it this year

From the above I assumed we would get Private Residence Relief when we sold it so would not have to pay CGT. I was looking up CGT for other reasons when I noticed that it states that PRR is only available if the property has less than half a hectare. We have a couple of acres so just over a hectare.

Has anyone had to pay this? Is it based on the increase in value on the whole property or just the land over the half hectare?

I think we can state that the extra land is ornamental or recreational use as part of the property and would be normal for a barn conversion to be set in this amount of space but I got completely lost in reading HMRC website.

I know we need to speak to a solicitor (accountant??) but we aren't at the stage of hiring a solicitor yet so just wanted to understand it better for when we work out the money situation. As in, we're in two minds as to whether to move or not and part of the decision will be based on the cost of moving vs staying put, so this could sway the figures dramatically if we do not get any PRR

Thanks in advance if anyone can explain the above as if to a 5 year old 😁

The relevant current law is Section 222(1)(b) of TCGA 1992, so 34 years ago, but that statute itself is the update/consolidation of previous laws as I seem to remember it was more of an update/consolidation of CGT generally rather than new laws for curtilage only, so probably the curtilage rules were first introduced in the original CGT act of 1965. It's one area of tax law that hasn't really changed in several decades. What HAS changed is the case law, like any law, it's the cases which evolve the law in practice over time. The statute itself says the specific number of acres/hectares, but case law has evolved to decide was "reasonable" is in terms of the land and the house itself.

@Badbadbunny

Thank you for this.

It sounds like we are in a grey area. The house is a barn conversion and since we have lived here we have converted another barn to use as an annex. All the living accommodation has been used by family only.

The buildings sit to one side of the land with gardens around it but the majority of the land is a large field. When we purchased it, it was totally open but we have put a fence up to separate the main garden from the field (this was purely to stop the dogs going into the field when we didn't want them to).

Sadly, the field could easily be sold off for development - we have considered it in the past but it is outside the boundary of the village plan so it is unlikely any planning would be agreed. (We are unsure how the original owners managed to get the planning for the barn conversion through in the first place and we know it caused controversy at the time).

If the CGT is only payable on the excess land (0.6 hectares) then I'm hoping this won't change our calculations too much. DH & I should each get £3k allowance so hopefully that will mitigate it.

I'm currently thinking evil thoughts about our solicitor from when we moved here not warning us of this.

I'm currently thinking evil thoughts about our solicitor from when we moved here not warning us of this.

I appreciate it might have been nice to know but would it have made any difference? You only have a significant bill if the value of the land has increased significantly in value (which would be a nice problem to have) and I assume is only the case if you can get planning permission.

I’m a tax adviser and as is always the case with tax.. it depends. It’s worth taking advice on for your specific circumstances.

I’ve claimed the relief for a client in the past with a larger area but it was a very (very) large house with long drive and well maintained gardens, so in the context the area made sense.

It will be harder to claim the field is your garden/required for the enjoyment of the house now it’s fenced off.

When you come to sell you’ll just need to get a valuer to give you a separate value for the land. They can also give approximate values for when you bought it or you could apportion the purchase price.

Also it would absolutely not be the place of the conveyancer on purchase to tell you about future tax implications.

Back to the Duck Test. Would you have had the same level of enjoyment living in the house if you'd not had the adjoining field? If so, then it's almost certainly not exempt under main residence relief. By the sounds of it, you've barely used the field, other than for running the dogs, so highly unlikely it would fall as part of the main residence.

As for your evil thoughts re the solicitor when you bought it, I'd not regard it as within their remit to give tax planning advice on future usage or future potential capital gains.

@Badbadbunny we can argue it was very much used in the past but sadly not for the past 10 years. TBH the field is part of the reason we are selling up, we're getting on in years and keeping it maintained is too much work

I think you're arguing yourself into confirming it's not exempt for main residence relief, as the land needs to be for the "enjoyment" of the house, and yet you say it's part of the reason you're selling up as it sounds more of a hindrance/pain these days. I do think you need to proceed along the lines as it not being exempt and declaring the gain in value of the field only over your years of ownership, hopefully the gain will be relatively small and partly covered by your respectively annual exemptions, so won't be too painful in terms of tax.

Arguably your reason for selling strengthens the case that it’s a single unit. If you could sell the field separately then you might not choose to leave. Assuming you are selling it as one transaction then I would ask your lawyer to act for you in respect of the CGT filing. They won’t put in a filing that they can’t stand behind but will be used to pushing the boundaries. Don’t raise it as a question with them, if you use a solicitor rather than a conveyancer they should take care of it and will ask you what they need. This is what we did and it worked.